A month has gone by since the last earnings report for Viav Solutions (VIAV Quick QuoteVIAV - Free Report) . Shares have added about 8.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Viav Solutions due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Viavi Tops Q3 Earnings Estimates, Withholds View

Viavi reported mixed third-quarter fiscal 2020 (ended Mar 28, 2020) results, with the bottom line surpassing the Zacks Consensus Estimate and the top line missing the same. The San Jose, CA-based company delivered lower revenues on the back of disappointing performance of NSE segment and adverse impact of the COVID-19 pandemic.

Bottom Line

On a GAAP basis, net loss from continuing operations came in at $32.8 million or 14 cents per share compared with a loss of $4.8 million or 2 cents per share in the year-ago quarter. The year-over-year deterioration was primarily caused by lower revenues and higher income tax provision.

In the March quarter, non-GAAP net income came in at $32 million or 14 cents per share compared with $30 million or 13 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

Revenues

Impacted by the pandemic, quarterly total net revenues declined 3.4% year over year to $256.2 million and fell below the company’s guidance of $268-$288 million. Markedly, NSE (Network and Service Enablement) segment’s performance was marred by COVID-19 woes. Nevertheless, OSP (Optical Security and Performance Products) segment delivered strong performance with an upsurge in customer orders. The top line missed the consensus estimate of $278 million.

Segment wise, revenues from Network Enablement fell 9.2% from the year-ago quarter’s figure to $163.9 million due to reduced demand of cable field and mature access instruments along with COVID-19 induced lockdown. Service Enablement revenues fell 7.2% to $23.1 million, mainly due to softness in demand of mature assurance products. Overall, revenues in the NSE segment were below the guidance of $204-$220 million.

NSE’s gross margin was 64.3%, up 20 basis points (bps) year over year. Its operating margin of 7.4% was below the guidance and contracted 270 bps from the year-ago quarter’s level. The downside was caused by lower revenue volume stemming from COVID-19 pandemic. However, it was partially offset by prudent expense control measures.

OSP revenues increased 15.7% year over year to $69.2 million and exceeded the projected range of $64-$68 million. The year-over-year improvement was mainly driven by robust demand of anti-counterfeiting products.

OSP’s gross margin of 52.6% expanded 110 bps owing to a favorable mix of anti-counterfeiting products. Operating margin of 35% exceeded the guidance of 31-33% and expanded 440 bps year over year. The increase was driven by higher gross margin coupled with efficient operating expense management.

Region wise, Viavi generated 34.7% of total net revenues from the Americas, 29% from the Asia-Pacific and 36.3% from EMEA (Europe, Middle East and Africa).

Other Details

Overall non-GAAP gross profit declined to $156.7 million with a margin of 61.2% from $162.5 million with 61.3% in year-ago quarter. Non-GAAP operating income was $38 million compared with $39 million in the prior-year quarter with respective margins of 14.8% and 14.7%. Non-GAAP operating margin in third-quarter of fiscal 2020 rose 10 bps year over year and was within the management’s guidance of 14.5-16.5%.

Cash Flow & Liquidity

During the fiscal third quarter, Viavi generated $39.1 million of cash from operations. As of Mar 28, 2020, the company had $532.5 million in cash and equivalents with $595.3 million of long-term debt.

The company repurchased nearly $33.1 million worth of shares at an average cost of $11.49 per share in the quarter. Of the $200 million authorized share buyback program announced in September 2019, Viavi has repurchased nearly $43.8 million worth of shares to date.

Moving Ahead

Thanks to the current uncertainties pertaining to the pandemic, Viavi has not provided a definitive outlook for the fourth quarter of fiscal 2020. However, revenues are anticipated to be sequentially flat to slightly better than third quarter 2020, primarily driven by seasonal strength in the NSE segment. Viavi’s long-term growth strategy depends on three pillars — Fiber, 5G Wireless and 3D Sensing. Nevertheless, backed by a robust liquidity position, the company is committed to overcome the near term catastrophic impact of COVID-19 with its much-acclaimed counter-cyclical business portfolio.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -26.32% due to these changes.

VGM Scores

At this time, Viav Solutions has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Viav Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.